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Monday, May 16, 2016

I often think Scott Morrison does a remarkably good Joe Hockey impression, but in this budget he's performed a Wayne Swan sleight-of-hand that's better than Swanny ever did.

Consider this. Big business has been desperate for a higher goods and services tax. Why? Because this was the only way the government could afford to grant them their longed for cut in company tax.

So when Malcolm Turnbull balked at increasing the GST, it seemed he wouldn't be cutting company tax either.

When the budget was unveiled, however, we still saw the government committing itself to cutting the company tax rate from 30 to 25 per cent over 10 years, and making an immediate start by cutting the rate to 27.5 per cent for all companies with turnover of less than $10 million a year, from July 1.

For good measure, Turnbull and Morrison threw in a small personal tax cut for the top quarter of earners. How on earth did they afford this without a higher GST?

Over the four years of the forward estimates, the company tax phase-down will cost $5.3 billion. Add $4 billion for the personal tax cut and we have $9.3 billion to account for.

The measures in the "tax integrity package" – which include the Google tax – should raise a net $3.3 billion.

The reforms to superannuation tax concessions will save a net $3.2 billion over the period, and the further hikes in the tobacco excise should raise $5.2 billion, meaning the three big revenue-saving measures will raise a combined $11.7 billion.

This leaves the government – the one so committed to lowering taxation – $2.4 billion ahead on the deal.

Satisfied all is in order? I'm not. Once fooled by Swanny, twice shy.

This government has done nothing but complain about how Labor committed itself to two expensive new spending programs – the national disability insurance scheme and the Gonski school funding – which proved to be "uncosted and unfunded".

What Swan did was stagger the introduction of the two schemes so that they didn't cost all that much in the first four years (the ones shown in the forward estimates) but got a lot more expensive in the following years (which we couldn't see).

Get it? This is the same trick Turnbull is using to hide the unaffordability of his vastly more expensive plan to cut the company tax rate over the next 10 years.

Little wonder he was so reluctant to reveal that the cumulative cost of the company tax "glidepath" was a paltry $48.2 billion.

So we've been told how the first $5.3 billion will be funded, but not the remaining $42.9 billion.

A key figure we haven't been told is the annual cost of the tax cut once it's fully introduced. But Deloitte Access Economics' Chris Richardson's estimate is about $16 billion a year.

Clearly, this is far more than the budget's tobacco excise increase, super reforms and company tax "integrity package" are likely to be able to cover.

In the last year of the forward estimates, 2019-20, those three measures are expected to raise only about $5.1 billion.

So if Morrison can now claim that the 10-year company tax cut phase-in has been costed, can he also claim it's been funded?

He's making the same claim Swan used to make by producing the "medium-term projection" of the budget showing it returning to surplus (in 2020-21, no change from the mid-year update) and staying in surplus until 2026-27.

Trouble is, whereas in last year's budget the government's "budget repair strategy" required it to deliver surpluses "building to at least 1 per cent of gross domestic product by 2023-24", this year's projection shows the surplus plateauing at 0.2 per cent for the last six years to 2026-27.

Why? Because progress in increasing the surplus (so as to pay back more debt) has been sacrificed to covering the ever-growing cost of the cut in company tax.

The cut really becomes expensive in the last three years, when big businesses join the phase-in. You can bet this "glidepath" has been carefully structured to stop the medium-term budget projection looking too sick.

Note too that the medium-term projection assumes tax collections are capped at 23.9 per cent of GDP after 2021-22, with the possibility that any excess is used to fund bracket-creep-returning tax cuts for Morrison's "hard-working Australians".

So the projections purporting to show that the company tax cut can be funded by our settling for seven years of a budget surplus no higher than $3.5 billion in today's dollars, also rely on the assumption of no further personal tax cuts for another six years.